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Milton Friedman once said: "Nothing is so permanent as a temporary government program." Perhaps this quote was unfinished, and should read, "especially when the temporary government program defines the scope of its tasks." Today, the Congressional Oversight Panel responsible for assessing the Troubled Asset Relief Program (TARP) has concluded that more extensive and continued oversight is necessary, validating concerns of those wary about increasing government involvement in the financial system.

As Tim Catts notes, the panel seeks to widely expand its powers to review banks. Specifically, it suggests re-doing the stress tests if unemployment turns out to be higher than assumption used when calculating the original stress tests, if banks "continue to hold large amounts of toxic assets on their books," or if regulators "believe that doing so would help promote a healthy banking system."

Most economists agree the pre-destined conclusion of any additional stress tests would be to force banks to raise more capital -- likely tangible common equity, which is now the unofficial favorite metric of the regulators -- diluting existing shareholders in the process. Although Treasury Secretary Tim Geithner has declared the stress tests a one-time event, and said today that TARP repayments are "an encouraging sign of financial repair," hints of more troubles at banks or additional forced capital raising could seriously damper the rally in financial stocks.

Recently having spoken with a number of financial professionals about the impact of TARP, the general feeling was that capital (coupled with the actions of the Federal Reserve) proved to be a decisive positive in the dark days of 2008. The almost-unanimous caveat, however, was that by constantly changing expectations, the government was creating great uncertainty in the world of private capital. Despite the report acknowledging this, saying "While government intervention has the potential to stabilize the system by shoring up bank capital, it can also risk further scaring away private capital by creating new forms of risk and uncertainty," the report presses on to advise doing exactly that. Forced sales of marked-down toxic assets, for example, would often be counter to a bank's best interests.

"I don't know why she [Elizabeth Warren, Chair of the Oversight Panel] would think that it makes sense for the banks to sell an asset at a price that somebody else is going to find incredibly attractive, using no leverage," said Tom Brown, a hedge fund manager who also writes at BankStocks.com.

Liquidity in the secondary market for such loans is being hampered by buyers demanding rates of return in excess of 20 percent. TARP may have saved the broader financial system, but that doesn't make it universally welcomed. Many executives were upset at being forced to take the capital, which came with compensation restrictions that applied to both them as well as top employees. These strings gave non-TARP recipients an advantage when trying to lure away senior investment bankers, traders, or portfolio managers, for example. It should not be surprising, then, that 10 large banks jumped at the opportunity to return $68 billion in TARP funds today following the approval of the Treasury Department.

Even with institutions divesting themselves of the government's preferred stock, don't be overly quick to judge winners or losers by that rule of thumb. Brown adds, "Take Wells Fargo (WFC), they're not one of the ten today [to return capital], but I don't think that puts them at a competitive disadvantage. But I also expect Wells Fargo will pay the TARP money back before the end of the year.

"Now if I didn't expect that, if I expected them to be like Citigroup (C), where they were going to have to operate for perhaps years with the government as a large preferred investor, then it would make me a little more concerned as an investor... If we can't see the end in sight, then we would have a more significant hesitation about valuing the company using the same parameters as we would for a non-TARP bank."